Maximum Price Fixing

Abstract

If all of the grocers in city agreed to sell 100-watt light bulbs for no more than fifty cents, that would be maximum price fixing. If group of optometrists agreed to charge no more than $30 for an eye examination and to display distinctive symbol on the shops of parties to the agreement, that would be maximum price fixing. And if most of the physicians in city, acting through nonprofit association, offered to treat patients for no more than given price if insurance companies would agree to pay the fee, that agreement would be maximum price fixing too. A maximum price appears to be boon for consumers. The optometrists' symbol, for example, helps consumers find low-cost suppliers of the service. But the agreement also appears to run afoul of the rule against price fixing, under which a combination formed for the purpose and with the effect of raising, depressing, fixing, pegging, or stabilizing the price of commodity . . . is illegal per se.91 This rule might be read as banning only those price agreements that reduce the allocative efficiency of the economy: monopolistic price increases and monopsonistic price decreases. In either of these cases, price agreement drives wedge between the competitive price and the market price, to the detriment of efficiency. On the other hand, if maximum price agreement serves only to supply information to consumers about where bargains can be had, or to overcome conditions that have elevated price above marginal cost, the objections to monopoly and monopsony do not apply. The Supreme Court has been of two minds about arguments of this sort. On the one hand, it has said that the benefits of price agreements are irrelevant. Whatever economic justification particular price-fixing agreements may be thought to have, the law does